American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
Sufficient Statistics for Nonlinear Tax Systems with General Across-Income Heterogeneity
American Economic Review
vol. 114,
no. 10, October 2024
(pp. 3206–49)
Abstract
This paper provides empirically implementable sufficient statistics formulas for optimal nonlinear tax systems in the presence of across-income heterogeneity in preferences, inheritances, income-shifting capabilities, and other sources. We characterize optimal smooth tax systems on income and savings (or other commodities), as well as simpler tax systems. We use familiar elasticity concepts and a novel sufficient statistic for heterogeneity correlated with earnings ability: the difference between across-income variation in savings and the causal effect of income on savings. We apply these formulas to the United States and find that the optimal savings tax is mostly positive and progressive.Citation
Ferey, Antoine, Benjamin B. Lockwood, and Dmitry Taubinsky. 2024. "Sufficient Statistics for Nonlinear Tax Systems with General Across-Income Heterogeneity." American Economic Review, 114 (10): 3206–49. DOI: 10.1257/aer.20221053Additional Materials
JEL Classification
- E21 Macroeconomics: Consumption; Saving; Wealth
- G51 Household Finance: Household Saving, Borrowing, Debt, and Wealth
- H21 Taxation and Subsidies: Efficiency; Optimal Taxation
- H24 Personal Income and Other Nonbusiness Taxes and Subsidies; includes inheritance and gift taxes